No business likes to perform collections because of the time and resources involved. When invoices age beyond the standard 30, 60, or 90-day payment schedules, businesses have to perform collections, which consist of reminders or going through agencies that can add an extra 45 days onto the payment schedule. That means an invoice that gets turned over to collections can take up to 75 days to get paid, regardless of size. So what options do businesses have to prevent their receivables from aging out to collections?
1. Demand a down payment
Demanding a down payment on large sales is not an uncommon practice. The theory is that when a customer already has “skin in the game” so to speak, they are more likely to pay off the remainder of the balance owed. The downside of demanding a down payment is that it can decrease repeat business. The outward perception is that if a business demands a down payment, then it either does not trust or has little faith in its customers. From a marketing standpoint, it is not a good look, and customers will usually look to competitors in the future to get what they need.
2. Impose late fees on overdue invoices
The other side of demanding a down payment is to impose late fees. The idea behind late fees is that customers do not want to pay more than they already owe, so they are incentivized to pay early or on time. Late fees come with a lot of legal attachments, such as having signage about late fees posted at the business, having representatives explain the late fee policy to customers ahead of the sale, and having the appropriate language on the invoices themselves to avoid any repercussions. Much like down payments, late fees are similarly seen as draconian, and customers will start looking for friendlier companies to make their purchases.
3. Use invoice factoring
Invoice factoring has been used for almost as long as businesses have been issuing invoices. An invoice factoring company, like New Century Financial, turns invoices into cash so businesses can access revenue without waiting 30 to 90 days. The fast turnaround time means businesses can access revenue faster and accelerate cash flow without devoting resources to chasing after every dollar. In a waya factoring company can act as your support system by providing access to unpaid payments from their online reports and assist in collecting any payments that are past the specified net terms. . When businesses want to streamline the accounting process and get access to revenue from their sales faster, they use invoice factoring services from New Century Financial. Contact our offices today to get started.